Chinese lenders see robust profit growth
Analysts warn pace may slow in wake of rising bad loans and liberalisation of interest rates
The mainland's two biggest lenders yesterday reported double-digit growth in their net profit last year, but analysts warned the pace would slow as bad loans rose and interest rate liberalisation unfolded.
Bank of China (BOC), the country's fourth-largest lender by assets, said net earnings rose 12 per cent from a year ago to 139.4 billion yuan (HK$172.43 billion), or 48 fen per share, thanks to improved lending margin.
The growth, beating the 7 per cent forecast by analysts, came mainly because the lender tilted to more lucrative loan businesses by lending to small companies, said vice-chairman and president Li Lihui.
Profit growth at mainland banks was set to decelerate from the scorching pace seen in the past few years as the gradual deregulation in interest rates intensified competition and forced lenders to transform, said Guo Tianyong, a professor at the Central University of Finance and Economics in Beijing.
Agricultural Bank of China, the country's third-largest lender, said yesterday that net profit increased 19 per cent year on year last year, thanks to its vast number of rural clients who accepted lower deposit rates and higher lending rates.
Both lenders expressed confidence in asset quality in future, although analysts are concerned about the build-up in bad loans after the country's economic growth slowed to 7.8 per cent last year.
Agricultural Bank said both the non-performing loan (NPL) balance and ratio fell last year, with the ratio standing at 1.33 per cent at the end of the year.
Bank of China's NPLs rose by 2.1 billion yuan to 65.4 billion yuan at the end of last year, but their ratio dropped to 0.95 per cent from 1 per cent.
Li said: "We are confident that asset quality will be stable. NPL ratio might climb slightly this year, but no big change will take place."
He said he expected the mainland economy to expand 7.5 per cent this year, in line with the central government's target. The slowdown last year hit many manufacturers and property developers as the economy grappled with overcapacity, including that of cement and steel, increasing the risk of rising bad loans this year.
Zhang Yun, the president of Agricultural Bank, said he expected bad-loan risks to be "generally controllable" this year but added the lender was prepared for a slowdown in profit growth.
He said Beijing would make further progress in the liberalisation of interest and exchange rates, internationalisation of the yuan and the deposit insurance system, adding that the lender would adapt to the changes.
Agricultural Bank said it had no immediate plans to raise additional capital in the stock market, while BOC said it had "no information to release" as of now.
Mainland lenders are widely believed to be thirsty for funds, pressured by the country's new capital requirements.
Shares in Bank of China fell 0.28 per cent in Hong Kong trading yesterday before the annual results were released, while Agricultural Bank dropped 0.79 per cent.